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Spring is most definitely in the air this week for embattled solar panel makers, with Canadian Solar (CSIQ) and Shunfeng Photovoltaic emerging as new sector leaders with different pieces of upbeat news. From my perspective the Canadian Solar news is the most exciting, even though some may say it doesn't come as a big surprise. The company announced it will post a net profit for the third quarter, becoming the first major solar firm to return to the black after two years of losses. Meantime, Shunfeng has announced details of its highly anticipated deal to buy the main assets of bankrupt former solar pioneer Suntech (STP), marking a major step forward in the industry's restructuring.

Investors welcomed both pieces of news, sharply bidding up shares of all 3 companies. Canadian Solar's American Depositary Shares (ADSs) jumped 12 percent to $28.65, taking them to levels not seen for 3 years. Anyone smart enough to buy the stock a year ago at its low of about $2 would be getting quite a nice return on that gamble. Shunfeng shares shot up 20 percent on its news, as trading in the stock resumed after a one-week suspension. Suntech shares also rallied 17 percent, indicating its stockholders believe their shares will still be worth something when the company finally emerges from its bankruptcy.

Let's start off with Canadian Solar, which issued a third quarter results preview that looked quite sharp all around. (company announcement) The company raised its outlook for shipments by about 18 percent, saying it now expects to ship 460-480 megawatts of panels during the quarter. But more impressive was a huge upward revision to its gross margins, which are now expected to come in at 18-20 percent, up sharply from the previous outlook for 10-12 percent.

That sudden surge in margins was likely a major factor behind the company's forecast that it would post not only a net profit for the third quarter but also for the first 9 months of the year. Canadian Solar had posted losses in this year's first 2 quarters, but repeatedly stuck by its forecast to be profitable for the year. I've said before that Canadian Solar's model of constructing and then selling solar plants looks like a good one, and its emergence as the first major company to return to profitability also looks like a strong sign that it will emerge as a future sector leader.

From Canadian Solar let's move on to Shunfeng, which announced it will pay 3 billion yuan, or nearly $500 million, to acquire most of Suntech's main assets in its hometown of Wuxi. (company announcement) Upon completion of the investment, Suntech's main manufacturing unit will become a wholly owned Shunfeng subsidiary. It looks like a big chunk of Shunfeng's new investment will go to repay some of Suntech's many creditors, including ones holding more than $500 million in bonds that Suntech defaulted on earlier this year, forcing it into bankruptcy.

This new cash infusion follows Suntech's announcement of another $150 million investment last week from Wuxi Guolian, a fund linked to Suntech's hometown government. (previous post) It's interesting to note that this combined cash infusion of some $650 million is significantly larger than Suntech's current market value, which still only stands at $280 million even after the strong rally on news of the Shunfeng investment.

I previously predicted Suntech's emergence from bankruptcy could still be 7 or 8 months away due to a seizure of company assets in Italy and an involuntary bankruptcy against the company in New York. But this latest rally in Suntech's stock seems to imply that its shareholders believe they will get at least some money for their stock, which could either be allowed to continue trading on Wall Street or possibly swapped for Shunfeng shares later.

Bottom line: Canadian Solar's return to profitability and Shunfeng's $500 million investment in Suntech indicate an overhaul of the solar sector is accelerating, as some producers start to return to profits.

Source: Clouds Lift For Canadian Solar, Suntech